First Time Flipper Advice on plan of action required

[mrembecki]

Hello,

I`ve purchased a property in the Courtice/Bowmanville area with the intention of re-selling. I purchased for $167K on a street where homes normally sell between 200-210K. After closing and insurance I`m at approx. $177K invested. I gave myself a budget of $15K which includes premium wood, carpeting, tile, washrooms, appliances, lighting, etc. The home will look great once it`s finished, but will continue to have an older roof and furnace (both function very well). With the current market situation, should I be investing a total of $192K with the intention to sell between 200-210K or should I budget less in order to sell for a lower price???

Any advice is much appreciated.

Thanks,

Martin.

 

[RedlineBrett]

QUOTE (mrembecki @ Jan 14 2008, 05:56 PM) Hello,

I`ve purchased a property in the Courtice/Bowmanville area with the intention of re-selling. I purchased for $167K on a street where homes normally sell between 200-210K. After closing and insurance I`m at approx. $177K invested. I gave myself a budget of $15K which includes premium wood, carpeting, tile, washrooms, appliances, lighting, etc. The home will look great once it`s finished, but will continue to have an older roof and furnace (both function very well). With the current market situation, should I be investing a total of $192K with the intention to sell between 200-210K or should I budget less in order to sell for a lower price???

Any advice is much appreciated.

Thanks,

Martin.


Those margins look pretty tight to me.. Also, how exactly did you get to 177k after buying for 167?

Have you accounted for agent costs at sale, holding costs while the property is vacant, mortgage payout penalties, legal fees etc?

What is your plan of action if you can`t sell it at the price you need?

In your opinion why did you get such a good deal on the property? Why would the seller sell knowing that the other homes on the street sell in the low 200s?

 

[mrembecki]

QUOTE (RedlineBrett @ Jan 14 2008, 08:17 PM) Those margins look pretty tight to me.. Also, how exactly did you get to 177k after buying for 167?

Have you accounted for agent costs at sale, holding costs while the property is vacant, mortgage payout penalties, legal fees etc?

What is your plan of action if you can`t sell it at the price you need?

In your opinion why did you get such a good deal on the property? Why would the seller sell knowing that the other homes on the street sell in the low 200s?


Hello Brett,

I agree with you that these margins are tight. I have taken the above mentioned costs into consideration. I will sell the home privately (I have an agent if I need her), mortgage penalty is $500 (not too bad). Just like most people I will have to rent the home if I cannot sell it, but homes rent for approx $1300 in this area so I can get someone faster if I rent for $1100. It`s not what I intend to do, but I am aware of this being a possibility. The home cost 167 + approx. $5000 for closing + $5000 for the insurance. The homeowner listed for $169,900 and he accepted my offer at $167K. He broke his pelvis and can no longer drive his cab. He`s in pretty rough shape and couldn`t afford his place and didn`t maintain it. The house was built in 88 so it`s outdated and has an older roof and furnace, but otherwise it`s just cosmetics. I really appreciate you replying to me b/c I`ve read your other posts and learned a lot each time. From your experience, have you had more success adding more into a place and therefore selling it faster or would you make your money by minimizing your costs on expenses?

Thanks,

Martin.

 

[jeremyfleming]

Martin, can you fix the place up, pull out your equity and then rent it? You may be further ahead in the long run with this strategy. I started flipping until I realized you can accomplish the same profit AND MORE by buying low, pulling out your equity and holding for appreciation.........

Just food for thought.

 

[jeremyfleming]

Duplicate - delete

 

[mrembecki]

QUOTE (jeremyfleming @ Jan 14 2008, 08:49 PM) Martin, can you fix the place up, pull out your equity and then rent it? You may be further ahead in the long run with this strategy. I started flipping until I realized you can accomplish the same profit AND MORE by buying low, pulling out your equity and holding for appreciation.........

Just food for thought.

I like that idea. Would that I apply only if I could generate positive cash flow from the rental of this property or is this the way to go regardless. Also, do you recommend anywhere to find out about pulling out equity?

Thanks very much for your reply,

Martin.

 

[RedlineBrett]

QUOTE (mrembecki @ Jan 14 2008, 06:39 PM) Hello Brett,

I agree with you that these margins are tight. I have taken the above mentioned costs into consideration. I will sell the home privately (I have an agent if I need her), mortgage penalty is $500 (not too bad). Just like most people I will have to rent the home if I cannot sell it, but homes rent for approx $1300 in this area so I can get someone faster if I rent for $1100. It`s not what I intend to do, but I am aware of this being a possibility. The home cost 167 + approx. $5000 for closing + $5000 for the insurance. The homeowner listed for $169,900 and he accepted my offer at $167K. He broke his pelvis and can no longer drive his cab. He`s in pretty rough shape and couldn`t afford his place and didn`t maintain it. The house was built in 88 so it`s outdated and has an older roof and furnace, but otherwise it`s just cosmetics. I really appreciate you replying to me b/c I`ve read your other posts and learned a lot each time. From your experience, have you had more success adding more into a place and therefore selling it faster or would you make your money by minimizing your costs on expenses?

Thanks,

Martin.

Hi Martin,

$5000 for closings and $5000 for insurance is A LOT of $$ for those services... For your reference, I have insured my properties for ~5-600/yr. Legal fees here in Calgary have topped out for me at $1800 on a rush rush rush job but are typically around 800-1000 with my lawyer when on the buying end.

I think you should get to the bottom of why those costs are so high and see if you can`t get some money back... what else did you pay for when `closing` ??

As for bang/buck - your reno should stop at the point when you are in the `market norm`. Fix what needs fixing but given your margins you should really hold back on extra stuff. Make sure the property is clean, smells nice, painted in modern (but neutral) colors and that it has a modest amount of curb appeal.

Also, make sure you go and see the houses in the neighborhood that are for sale right around the time you plan to list. Pretend you are a buyer and do a `tour`. This will give you a chance to see if your property has something you can `play up` to new buyers and will also help you know if you have left out anything important that you must fix/change before listing the property. Take a friend with you that has never seen your house and get some third party viewpoints and an objective view.

Good luck!

BT

 

[UTCVenturesLtd]

QUOTE (mrembecki @ Jan 14 2008, 05:56 PM) Hello,

I`ve purchased a property in the Courtice/Bowmanville area with the intention of re-selling. I purchased for $167K on a street where homes normally sell between 200-210K. After closing and insurance I`m at approx. $177K invested. I gave myself a budget of $15K which includes premium wood, carpeting, tile, washrooms, appliances, lighting, etc. The home will look great once it`s finished, but will continue to have an older roof and furnace (both function very well). With the current market situation, should I be investing a total of $192K with the intention to sell between 200-210K or should I budget less in order to sell for a lower price???

Any advice is much appreciated.

Thanks,

Martin.


Hi Martin,
You make your money when you "buy". Make sure your fixer uppers are budgeted for correctly and add a good 10% for overruns and unexpected expenses. I am in the middle of changing my strategy as you have to look at flipping being "income" and fully taxable. I like the idea of having some rec property that doesn`t change much and using my principle residence as the "flip". You can take your time doing it and live in there 6 months or a year... (see accountant or check with CRA) The only downside is the constantly having to move and living in the mess. An RV parked outside may be a way around full renos... Something to consider.
Dean
[email protected]

 

[invst4profit]

Your profit margin is extreamly thin and you will probably blow past your $15,000 budget. If it were me I would do a quick lipstick rehab (clean, repair and paint) and get it back on the market in the shortest time frame possible at about $195 for a guick sale. Your profit margin will be about the same with less work and less time. Do not over rehab, that is one of the biggest mistakes people make. In addition if you end up renting you will not have invested too much in goods that will have to be replaced again to sell. Keep in mind renters do not treat your property as if it was there own.

 

[jeremyfleming]

QUOTE (mrembecki @ Jan 14 2008, 07:09 PM) I like that idea. Would that I apply only if I could generate positive cash flow from the rental of this property or is this the way to go regardless. Also, do you recommend anywhere to find out about pulling out equity?

Martin, first let me say that yes, the profit margin on this deal is VERY skinny, and allows no room for error. I will assume that you are absolutely positive on all of your figures and you need no margin for error.

I have never bought a negative cashflow property, although I realize others have. If it will be negative cashflow, my assumption is you should not hold as a rental, because you are going to need your money (cashflow) to qualify for further mortgages. Negative cashflow will hamper this.

The purpose of my last post was really geared to get you thinking outside the box, and to show you that there are other ways to make money in real estate than straight flipping. Yes flipping can generate large sums of money in a short time, but you are also giving up the house and future appreciation (as well as monthly cashflow if you have purchased the correct property).

Explaining the equity take out stretegy will take more than just this thread, so I will point you in the direction of some reference material......... outside of fixing a property, and then refinancing it via a traditional mortgage at the higher appraised value, there are 2 methods that I have learned as a REIN member that you may wish to look into. The first is the RRSP second mortgage strategy, and the other is the Joint Venture strategy. Both of these strategies have been discussed at length on this message board, and by using the search function in the upper left corner of the screen you can find a wealth of FREE info.

REIN also sells a course for EACH of these strategies seperately, and as a graduate of both I have to say that if you wish to succeed as an investor - these courses are essential training.

Keep in mind that EVERY succesful investor I have EVER met uses one or both of those tools on a regular basis. Good luck in your ventures!

Cheers,
Jeremy